Sen. Brown to SEC: Stop Giving Banks a Pass on Wrongdoing

WASHINGTON — A key Senate Democrat is criticizing the Securities and Exchange Commission for granting special waivers and reprieves to financial firms involved in significant misconduct.

Sen. Sherrod Brown (D., Ohio) said SEC waivers have become “the rule rather than the exception,” citing two recent cases involving Credit Suisse Group AG and Royal Bank of Scotland Group PLC that allowed both firms to receive reprieves or special treatment for their U.S. operations that would have otherwise been crimped because of illegal conduct elsewhere at the firms.

“Removing privileges enjoyed by large firms will promote better behavior, increase accountability, and demonstrate to the financial markets that certain firms do not enjoy special treatment by virtue of their size,” Mr. Brown wrote in a letter to SEC Chairman Mary Jo White Friday.

A spokesman for the SEC had no immediate comment.

The letter comes weeks after the SEC granted Credit Suisse a temporary reprieve from a rule that would have stripped the firm of its ability to act as an investment adviser as a penalty for its guilty plea in a $2.6 billion tax-evasion settlement.

The exemption from the rule staved off a potentially crippling blow that would have rippled through Credit Suisse’s lucrative asset-management business in the U.S. Credit Suisse, in a letter to the SEC, argued that the conduct it pleaded guilty to in the case didn’t involve employees acting as an investment adviser and that employees of its investment-advisory businesses weren’t involved in the crimes.

Separately, the SEC in April voted to continue to overturn the automatic disqualification of RBS’s eligibility as a “well-known seasoned issuer,” or WKSI, which gives qualified firms certain advantages in how they register stock offerings, despite the firm’s recent conviction for manipulating interest rates.

Mr. Brown noted that one commissioner who dissented from the vote in the RBS matter, Democrat Kara Stein, said the decision to overturn RBS’s disqualification “may have enshrined a new policy — that some firms are just too big to bar.”

“I hope that the SEC will reconsider and revise a process that has now been questioned by the public, lawmakers, and a sitting SEC Commissioner,” Mr. Brown wrote in his letter Friday.

Mr. Brown asked Ms. White to provide him with a complete list of the waiver provisions available to financial institutions under the securities law. He also asked if the SEC has written policies guiding its decisions to grant waivers for each provision, and what steps the SEC has taken “to ensure uniformity and consistency in the decision to approve or deny a request for a waiver.”

“Having been SEC Chair for more than a year, have you examined the policies and decisions surrounding waivers of securities laws?” Mr. Brown wrote. “If so, what determinations have you made about the appropriateness of the SEC’s policies?”